CHAPTER ONE

1. Introduction
1.1 Background of the Study

The word performance is derived from the word ‘parfourmen, which means
‘to do’ to carry out ‘or’ to render. It refers the act of performing, execution,
accomplishment, fulfilment etc. In broader sense, performance refers to the
accomplishment of a given task measured against preset standards of
accuracy, completeness, cost and speed. In other words, it refers to the
degree to which an achievement is being or has been accomplished
performance is used to indicate firm’s success, conditions and compliance.
(Shodhganag inflibnet. ac).

Financial performance refers to the act of performing financial activity. In

broader sense, financial performance refers to the degree to which financial
objectives being or has been accomplished.

It is the process of measuring the results of a firm’s policies and operations

in monitory terms. It is used to measure firm’s overall financial health over a
given period of time can also be used to compare similar firms across the
same industry or to compare industries or sectors in aggregation.
(Shodhganga inflibnet ac).

The analysis of financial statements is a process of evaluating the

relationship between component parts of financial statements to obtain a
better understanding of the firm’s position and performance. (Shodhganga
inflibnet ac).

The financial performance analysis identifies the financial strengths and

weaknesses of the firm by properly establishing relationships between the
items of the balance sheet and the income statement. In short financial
performance analysis is the process of selection, relation and evaluation.
(Shodhganga –inflibnet. ac)

1
Financial analysts often assess firm’s production and productivity
performance, profitability performance, liquidity performance working
capital performance and fixed assets performance.

Generally, financial statements capture and report on four key business

activities planning, financing, investing, and operating activities. Knowing
what information is to be found plus where to find it and how to use it in
financial statement is imperative to intelligently understanding, analyzing,
and interpreting financial data. Financial statement analysis is useful as a
tool in selecting investment or merger candidates, as a forecasting tool or
future financial conditions, as an evaluation tool for managerial and other
business decisions (Pamela P).

To sum up analysis of financial statements provides the essential concepts

and tools needed by security analysts who make decisions on the basis of
information found in financial statements (Pamela P).

1.2 Background of the Organization

1.2.1 Background of the Shemu Soap and Detergent (PLC)

Shemu Soap and Detergent (PLC) is a private limited company

which had been initially established in 2009 G.C with initial capital
of 1,000,000 Birr. Shemu soap and Detergent (PLC) found in the
Dire Dawa city in the industry village. The major input for the
company are labours, factory and office buildings and different
foreign and local raw materials etc. By using this input the
company produce polar soap, hotel soap, and liquid detergent of
different formation for house hold general clearing purposes and
for industrial application as bottling industries and water well
drilling.

The general business objective is to fulfil the expectations of owners,

governmental agencies; employees, customers and the country at large have
from the company.

2
 Business Vision

To be the solution and most sought after market leader for all our value
product

Business Mission

1. Optimizing our values for all our product world wide

2. Significantly improving clients financial and operational efficiencies
3. Benefiting people, the community and the environments

Organizational Set up

Shemu soap and detergent (PLC) under the supervision of general manager
and they have four departments.

1. Manufacturing manager.
2. Senior finance manager
3. Senior Distribution manager
4. Senior HR and GS manager

1.2.2 Background of the Konel soap and detergent factory

Konel soap and detergent factory is one of private soap factory that it is
located in Dire Dawa town which is found at distance of 515km from Addis
Ababa town. Initially the factory was organized by Ethiopian three business
partners and the factory started to built in 2015 G.C and started work
in2017 G.C.
The konel industrial (PLC) originally had one soap making machine which
produce a bar soap with a brand name “konel”. But now konel (PLC) have
three independent but interrelated factories which are producing product
like bar soap, plastic bottle, and liquid detergent. total worker on startup 55
in 1 plant and the Startup capital 45,500,000 birr.
Mission

 To seize a remarkable export share in the international market.

Satisfy the national soap demand.
 Create computable social and economic interlink among the public

3
Vision

 To be leading produce quality liquid detergent.

 Continually decreasing production cost.
 To create a sustainable competitive soap industry.
 Production of basic raw material for the production of soap in
detergent.

The objective of company

The business objective of Konel industrial P.L.C as stared in the memorandum of
association includes:

 Production of toilet, laundry soap and detergent bars.

 To be leading produce quality liquid detergent.
 To be the best manufacturer and exporter of detergent and soap.
 Manufacturing of packaging material for liquid detergent and toilet
soap, to keep the quality and moisture.
 Shemu soap and detergent (PLC) under the supervision of general
manager and they have four departments

Organizational Set up

Konel soap and detergent (PLC) under the supervision of general manager
and they have four departments

1. Finance and HR manager

2. Supply chain manager
3. Technical and production manger
4. Quality control/ assurance manager

1.3 Statement of the Problem

Financial analysis (also referred to as financial statement analysis or

accounting analysis) refers to an assessment of the visibility, stability and
profitability of a business sub –business or project. It is performed by
professionals who prepare reports using ratios that make use of information
taken from financial statements and other reports. Those reports are usually

4
presented to top management as one of their bases in making business
decisions such as continue or discontinue its main operation or part of its
business, make or purchase certain materials in the manufacture of its
product, Acquire or rent/ lease certain machineries and equipment in the
production of its goods, make decisions regarding investing or lending
capital and other decisions that allow management to make an informed
selection on various alternatives in the conduct of its business. (en.
wikipedia –org).

Generally, when we assess different researches worked in SHEMU Soap and

Konel Detergent (PLC) there is no enough research that shows the real
financial performance of the company. As a result we will try to assess the
exact financial performance of the company by using different accounting
techniques. In addition to assessing the financial performance of the
company we will try to find out any problem related to the financial
performance of the company such as insuffient profit, cash shortage, loan
repayment and shortage of inventory etc. Thus in order to know the exact
performance of the company related to finance the following three questions
is carefully answered:-

1) The firm able to earn income and sustain growth in both short term
and long term? (Profitability).
2) Up to what extent the firm able to pay its obligation to creditors and
other third parties in the long term? (Insolvency).
3) The firm able to maintain in positive cash flow, while satisfying
immediate obligations? (Liquidity).
1.4 Objectives of the Study
1.4.1 General Objectives

The overall objective of this study is to assess the financial performance and
evaluate financial healthiness of Shemu and Konel soap and Detergent
factory (PLC) by using different analytical tool

5
1.4.2 Specific Objectives

A careful review of the main objectives leads to the development of the

following specific objectives.

1. To evaluate the company profitability.

2. To measure the short term liquidity position of the company.
3. To analyse the long term liquidity position of the company.
4. To find out the attractiveness of the company as investment by
examining its ability to meet its current and expected financial
obligation.

1.5 Significance of the Study

The study under the title of financial performance analysis of SHEMU and
Konel soap and Detergent (PLC) try to show the current position of the
company, identify the company current strength and weakness, gives
information for the creditors for their investment decision and help the
management to take corrective actions for the problem faced relating to the
profitability, the solvency, the liquidity and the stability. In general we are
quietly sure that the manager of the company will find it useful in
overcoming the problem that face related to the financial performance of the
company. The last but not least, this study also helps for other researchers
who conduct their research on the same title.

1.6 Scope of the Study

The study mainly focuses on the financial performance of Shemu and Konel
soap and Detergent factory (PLC). The report is proposed mainly based on
secondary data. The secondary data will be collected from the annual
financial statement of the company. Particularly income statement and
balance sheet not include statement of retained earnings and statement of
cash flow for the period of (2018-2020 GC).

6
1.7 Organization of the Paper

This paper is composed of five chapters. The first chapter present the
introduction part of the study which includes background of the study,
statement of the problem, objective of the study, significance of the study
and scope of the study. The second chapter presents review of literatures.
Then the third chapter details with methodology such as methods of data
collection and tools for analysis. Finally the last chapter contain summary
of findings, conclusion and recommendations.

7
 CHAPTER TWO

2. Literature Review

2.1 FINANCAIL PERFORMANCE

In broader sense, financial performance refers to the degree to which
financial objectives being or has been accomplished. It is the process of
measuring the results of a firm's policies and operations in monetary terms.
It is used to measure firm's overall financial health over a given period of
time and can also be used to compare similar firms across the same
industry or to compare industries or sectors in aggregation.
(Www.Shodhganaginflibnet.ac)
2.2 FINANCIAL PERFORMANCE ANALYSIS
In short, the firm itself as well as various interested groups such as
managers, shareholders, creditors, tax authorities, and others seeks
answers to the following important questions:
1. What is the financial position of the firm at a given point of time?
2. How is the Financial Performance of the firm over a given period of time?
These questions can be answered with the help of financial analysis of a
firm. Financial analysis involves the use of financial statements. A financial
statement is an organized collection of data according to logical and
consistent accounting procedures. Its purpose is to convey an
understanding of some financial aspects of a business firm. It may show a
position at a moment of time as in the case of a Balance Sheet, or may
reveal a series of activities over a given period of time, as in the case of an
Income Statement. Thus, the term ‘financial statements’ generally refers to
two basic statements: the Balance Sheet and the Income Statement.
(Www.Shodhganaginflibnet.ac)

The Balance Sheet shows the financial position (condition) of the firm at a
given point of time. It provides a snapshot and may be regarded as a static
picture. “Balance sheet is a summary of a firm’s financial position on a given
date that shows Total assets = Total liabilities + Owner’s equity.”

8
The income statement (referred as the profit and loss statement) reflects the
performance of the firm over a period of time. “Income statement is a
summary of a firm’s revenues and expenses over a specified period, ending
with net income or loss for the period.” However, financial statements do not
reveal all the information related to the financial operations of a firm, but
they furnish some extremely useful information, which highlights two
important factors profitability and financial Soundness. Thus analysis of
financial statements is an important aid to financial performance analysis.
The analysis of financial statements is a process of evaluating the
performance analysis includes analysis and interpretation of financial
statements in such a way that it undertakes full diagnosis of the profitability
and financial soundness of the business. Relationship between component
parts of financial statements to obtain a better understanding of the firm’s
position and performance.
The financial performance analysis identifies the financial strengths and
weaknesses of the firm by properly establishing relationships between the
items of the balance sheet and profit and loss account. The first task is to
select the information relevant to the decision under to consideration from
the total information contained in the financial statements. The second is
arranging the information in a way to highlight significant relationships. The
final is interpretation and drawing of inferences and conclusions. (Pamela P,
2010)
In short, financial performance analysis is the process of selection, relation,
and evaluation.

2.3 AREAS OF FINANCIAL PERFORMANCE ANALYSIS

Financial analysts often assess firm's production and productivity
performance, profitability performance, liquidity performance, working
capital performance, fixed assets performance, fund flow performance and
social performance.
2.4 SIGNIFICANCE OF FINANCIAL PERFORMANCE ANALYSIS
Interest of various related groups is affected by the financial performance of
a firm. Therefore, these groups analyze the financial performance of the

9
firm. The type of analysis varies according to the specific interest of the
party involved.
Trade creditors: interested in the liquidity of the firm (appraisal of firm’s
liquidity)
Bond holders: interested in the cash-flow ability of the firm (appraisal of
firm’s capital structure, the major sources and uses of funds, profitability
over time, and projection of future profitability)
Investors: interested in present and expected future earnings as well as
stability of these earnings (appraisal of firm’s profitability and financial
condition)
Management: interested in internal control, better financial condition and
better performance (appraisal of firm’s present financial condition,
evaluation of opportunities in relation to this current position, return on
investment provided by various assets of the company, etc)(Pamela P,2010)
2.5 TYPES OF FINANCIAL PERFORMANCE ANALYSIS:
Financial performance analysis can be classified into different categories:-
1. External analysis
This analysis is undertaken by the outsiders of the business namely
investors, credit agencies, government agencies, and other creditors who
have no access to the internal records of the company. They mainly use
published financial statements for the analysis and as it serves limited
purposes.
2. Internal analysis
This analysis is undertaken by the persons namely executives and
employees of the organization or by the officers appointed by government or
court who have access to the books of account and other information related
to the business.
3. Horizontal Analysis
In this type of analysis financial statements for a number of years are
reviewed and analyzed. The current year’s figures are compared with the
standard or base year and changes are shown usually in the form of
percentage. This analysis helps the management to have an insight into

10
levels and areas of strength and weaknesses. This analysis is also called
Dynamic Analysis as it based on data from various years.
4. Vertical Analysis
In this type of Analysis study is made of quantitative relationship of the
various items of financial statements on a particular date. This analysis is
useful in comparing the performance of several companies in the same
group, or divisions or departments in the same company. This analysis is
not much helpful in proper analysis of firm’s financial Analysis as it based
on position because it depends on the data for one period. This analysis is
also called Static data from one date or for one accounting period.
(Www.Shodhganag inflibnet.ac)
2.6 TECHNIQUES/TOOLS OF FINANCIAL PERFORMANCE ANALYSIS:
An analysis of financial performance can be possible through the use of one
or more tools / techniques of financial analysis. One of the most common
techniques is accounting techniques. It is also known as financial
techniques. Various accounting techniques such as Comparative Financial
Analysis, Common-size Financial Analysis, Trend Analysis and Ratio
Analysis may be used for the purpose of financial Analysis.(Modern
corporate finance, 1994)
2.6.1 Ratio Analysis
In order to evaluate financial condition and performance of a firm, the
financial analyst needs certain tools to be applied on various financial
aspects. One of the widely used and powerful tools is ratio or index. Ratios
express the numerical relationship between two or more things. This
relationship can be expressed as percentages (25% of revenue), fraction
(one-forth of revenue), or proportion of numbers (1:4). Accounting ratios are
used to describe significant relationships, which exist between figures
shown on a balance sheet, in a profit and loss account, in a budgetary
control system or in any other part of the accounting organization. Ratio
analysis plays an important role in determining the financial strengths and
weaknesses of a company relative to that of other companies in the same
industry. The analysis also reveals whether the company's financial position
has been improving or deteriorating over time. Ratios can be classified into

11
four broad groups on the basis of items used: (1) Liquidity Ratio, (ii) Capital
Structure/Leverage Ratios, (iii) Profitability Ratios, and (iv) Activity Ratios.
(Pamela P, 2010).
2.6.1.1 Liquidity Ratios

Liquidity ratios provide information about a firm’s ability to meet its short-
term financial obligations. These ratios are calculated to comment up on the
short-term paying capacity of a concern or the firm’s ability to meet its
current obligations. Two frequently used liquidity ratios are the current ratio
(or working capital ratio) and the quick ratio cash ratio is the most
conservative liquidity ratio.

A. Current Ratio (working capital ratio)

Current ratio may be defined as the relationship between current assets and
current liabilities. This ratio is also known as ‘working capital ratio’. It is a
measure of general liquidity and is most widely used to make the analysis
for short term financial position or liquidity of a firm. It is calculated by
dividing the total of the current assets by total of the current liabilities.

Formula: Current Ratio = Current Assets

Current Liabilities

A relatively high current ratio is an indication that the firm is liquid and has
the ability to pay its current obligations in time and when they become due.
On the other hand, a relatively low current ratio represents that the liquidity
position of the firm is not good and the firm shall not be able to pay its
current liabilities in time without facing difficulties. An increase in the
current ratio represents improvement in the liquidity position of the firm
while a decrease in the current ratio represents that there has been
deterioration in the liquidity position of the firm. A ratio equal to or near 2:1
is considered as a standard or normal or satisfactory. The idea of having
doubled the current assets as compared to current liabilities is to provide for
the delays and losses in the realization of current assets. However, the rule
of 2:1 should not be blindly used while making interpretation of the ratios.

12
Firms having less than 2:1 ratio may be having a better liquidity than even
firms having more than 2:1 ratio. This is because of the reason that current
ratio measures the quantity of the current assets and not the quality of the
current assets.

B. Quick Ratio (Acid Test)

It is an instrument to measure the liquidity position of the company. This

ratio is the same as the current ratio except that not include inventory
account and prepaid expenses. The two components of quick ratio are liquid
assets and liquid liabilities. Liquid asset include all current asset except
inventory and prepaid expenses. Inventories can’t be termed as liquid assets
because it can’t be converted in to cash immediately without a loss of value.
In the same manner, prepaid expenses are also excluded from the list of
liquid assets because they are not expected to be converted in to cash
similarly, liquid liabilities means current liabilities.

Formula: Quick Ratio = Liquid Assets

Current Liabilities

C. Cash Ratio

The cash ratio is the most conservative liquidity ratio. It excludes all current
assets except the most liquid cash and cash equivalents.

Formula: - Cash Ratio = Cash + Marketable securities

Current Liabilities

2.6.1.2 Financial Leverage Ratio (insolvency)

Long term solvency or leverage ratios convey a firm’s ability to meet the
interest costs and payment schedules of its long term obligations.

A. Debt to Equity Ratio

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It is a significant measure of solvency since a high degree of debt in the
capital structure may make it difficult for the company to meet interest
charges and principal payment of a maturity. This ratio reflects the relative
claims of creditors and shareholders against the asset of the company.

Formula: Debt to Equity = Total Debt

Total Equity

B. Debt Ratio (DR)

The debt ratio compares total liabilities from total asset. It shows the
percentage of total funds obtained from creditors. Creditors would rather see
low debt ratio because there is a great cushion for creditor’s losses if the
firm goes bankrupt. It tells the amount of other people’s money being used
in attempting to generate profits. A high ratio indicates more of firms asset
are provided by creditors relative to owner.

Formula: Debt Ratio = Total debt

Total Asset

C. Time Interest Earned

This ratio serves as one measure of firm’s ability to meet its interest
payment and thus avoid bankruptcy. In general the high the ratio, the great
the probability that the company could cover its interest payment without
difficulty. It also shows light on the firm’s capacity to take on new debt.

Formula: Time Interest earned = EBIT

Interest Expense

2.6.1.3 Profitability Ratio (PR)

Profitability ratios measure the results of business operations or overall

performance and effectiveness of the firm some of the most popular
profitability ratio are:-

14
A. Gross profit Ratio (GPR)

Gross profit ratio is the ratio of gross profit to net sates expressed as a
percentage. It expresses the relationship between gross profit and sales.

Formula: - Gross profit ratio = Grass Profit x 100

Net sales

B. Net Profit Ratio

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is
expressed as percentage.

Formula: –net profit ration = Net profit x 100

Net sales

C. Return on Equity Capital (ROEC)

ROEC is the relationship between profits of accompany and its equity. It is

the bottom line measure for shareholders, measuring the profits earned for
each birr invested in the firm’s stock.

Formula: - Return on Equity = NI

Shareholder equity

D. Return on Asset (Investment)

It is the ratio of net income to shareholder’s investment. It is the

relationship between net income and shareholder’s. This ratio establishes
the profitability from the shareholders point of view. The ratio is generally
calculated in percentage.

Formula: - Return on asset = Net profit after tax

Total assets

2.6.1.4 Asset Turnover Ratio (Activity Ratio)

15
Asset turnover ratios indicate of how efficiently the firm utilizes its assets.
They sometimes are referred to so efficiency ratios, asset utilization rations,
or asset management ratios. Two commonly used asset turnover ratios are
receivables turnover and inventory turnover.

A. Receivables Turnover

Receivables turnover is an indication of how quickly the firm collects its

account receivables. In simple words it indicates the number of times
average debtors (receivable) are turned over during a year.

Formula: - Receivable Turnover = Annual credit sales

Accounts receivable

B. Inventory Turnover/Stock Turnover

Every firm has to maintain a certain level of inventory of finished goods so

as to be able to meet the requirements of the business. But the level of
inventory should neither be too high nor too low. A too high inventory
means higher carrying costs and higher risk of stocks becoming obsolete
whereas too low inventory may mean the loss of business opportunities. It is
very essential to keep sufficient stock in business inventory turnover ratio
indicates the number of time the stock has been turned over during the
period and evaluates the efficiency with which a firm is able to manage its
inventory. This ratio indicates whether investment in stock is within proper
limit or not.

Formula: - Inventory Turnover Ratio = CDGS or NS

Inventory

C. Fixed Assets Turnover Ratio

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This
ratio measures the efficiency and profit earning capacity of the concern.
Higher the ratio, greater is the intensive utilization of fixed assets. Lower
ratio means underutilization of fixed assets.

16
Formula: - FAT = Sales /NFA

Advantages of Ratios Analysis

Ratio analysis is an important and age-old technique of financial analysis.

The following are some of the advantages / Benefits of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of

financial statements. Ratios tell the whole story of changes in the
financial condition of the business
2. Facilitates inter-firm comparison: It provides data for inter-firm
comparison. Ratios highlight the factors associated with successful
and unsuccessful firm. They also reveal strong firms and weak firms,
overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can
assist management, in its basic functions of forecasting. Planning, co-
ordination, control and communications.
4. Makes inter-firm comparison possible: Ratios analysis also makes
possible comparison of the performance of different divisions of the
firm. The ratios are helpful in deciding about their efficiency or
otherwise in the past and likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the
case of investors and lending decisions in the case of bankers etc.

Limitations of Ratios Analysis:

The ratios analysis is one of the most powerful tools of financial

management. Though ratios are simple to calculate and easy to understand,
they suffer from serious limitations.

1. Limitations of financial statements: Ratios are based only on the

information which has been recorded in the financial statements.
Financial statements themselves are subject to several limitations.
Thus ratios derived, there from, are also subject to those limitations.
For example, non-financial changes though important for the

17
 business are not relevant by the financial statements. Financial
statements are affected to a very great extent by accounting
conventions and concepts. Personal judgment plays a great part in
determining the figures for financial statements.
2. Comparative study required: Ratios are useful in judging the efficiency
of the business only when they are compared with past results of the
business. However, such a comparison only provide glimpse of the
past performance and forecasts for future may not prove correct since
several other factors like market conditions, management policies, etc.
may affect the future operations.
3. Ratios alone are not adequate: Ratios are only indicators; they cannot
be taken as final regarding good or bad financial position of the
business. Other things have also to be seen.
4. Problems of price level changes: A change in price level can affect the
validity of ratios calculated for different time periods. In such a case
the ratio analysis may not clearly indicate the trend in solvency and
profitability of the company. The financial statements, therefore, be
adjusted keeping in view the price level changes if a meaningful
comparison is to be made through accounting ratios.
5. Lack of adequate standard: No fixed standard can be laid down for
ideal ratios. There are no well accepted standards or rule of thumb for
all ratios which can be accepted as norm. It renders interpretation of
the ratios difficult.
6. Limited use of single ratios: A single ratio, usually, does not convey
much of a sense. To make a better interpretation, a number of ratios
have to be calculated which is likely to confuse the analyst than help
him in making any good decision.
7. Personal bias: Ratios are only means of financial analysis and not an
end in itself. Ratios have to interpret and different people may
interpret the same ratio in different way. (Www.accounting for
management. Com)

2.6.2 Common-Size Financial Analysis

18
Common-size statement is also known as component percentage statement
or vertical statement. In this technique net revenue, total assets or total
liabilities is taken as 100 per cent and the percentage of individual items are
calculated likewise. It highlights the relative change in each group of
expenses, assets and liabilities.
2.6.3 Trend Analysis
Trend analysis indicates changes in an item or a group of items over a
period of time and helps to drown the conclusion regarding the changes in
data. In this technique, a base year is chosen and the amount of item for
that year is taken as one hundred for that year. On the basis of that the
index numbers for other years are calculated. It shows the direction in
which concern is going.
2.7 Advantages of Financial Statement Analysis
There are various advantages of financial statements analysis. The major benefit is
that the investors get enough idea to decide about the investments of their funds in
the specific company. Secondly, regulatory authorities like International
Accounting Standards Board can ensure whether the company is following
accounting standards or not. Thirdly, financial statements analysis can help the
government agencies to analyze the taxation due to the company. Moreover,
company can analyze its own performance over the period of time through financial
statements analysis. (Www.accounting for management.Com)
2.8 Limitations of Financial Statement Analysis:

Although financial statement analysis is highly useful tool, it has two

limitations. These two limitations involve the comparability of financial data
between companies and the need to look beyond ratios.

A) Comparison of Financial Data

Comparison of one company with another can provide valuable clues about
the financial health of an organization. Unfortunately, differences in
accounting methods between companies sometimes make it difficult to
compare the companies' financial data. For example if one firm values its
inventories by LIFO method and another firm by the average cost method,
then direct comparison of financial data such as inventory valuations and
19
cost of goods sold between the two firms may be misleading. Sometimes
enough data are presented in foot notes to the financial statements to
restate data to a comparable basis. Otherwise, the analyst should keep in
mind the lack of comparability of the data before drawing any definite
conclusion. Nevertheless, even with this limitation in mind, comparisons of
key ratios with other companies and with industry average often suggest
avenues for further investigation.

B) The Need to Look Beyond Ratios:

An inexperienced analyst may assume that ratios are sufficient in

themselves as a basis for judgment about the future. Nothing could be
further from the truth. Conclusions based on ratios analysis must be
regarded as tentative. Ratios should not be viewed as an end, but rather
they should be viewed as starting point, as indicators of what to pursue in
greater depth. They raise many questions, but they rarely answer any
question by themselves.

In addition to ratios, other sources of data should be analyzed in order to

make judgment about the future of an organization. The analyst should
look, for example, at industry trends, technological changes, changes in
consumer tastes, changes in broad economic factors, and changes within
the firm itself. (www.accounting for management.Com)

20
 CHAPTER THREE

3. Research Methodology and Design

3.1 Area of the Study

The study was conducted on the assessment of financial performance of

Shemu and Konel soap and detergent (PLC) which is located in DIRE DAWA.

3.2 The Research Design

For this research project descriptive design type of the research will be used
because the researches conduct in order to describe the existing financial
performance of Shemu and Konel Soap and detergent (PLC).

3.3 Data Source and Collection Methods

For this study, the researcher will be used secondary source of data. the
secondary data will be collected by reviewing the company annual audited
financial statement and audit report.

3.4 Method of Data Analysis

After the relevant data collected from the company financial statement, in
order to describe the real financial performance of the company the
researcher will be use different accounting tools such as ratio analysis
including liquidity ratio, debt ratio, profitability ratio and asset management
ratio, Horizontal analysis and vertical analysis.

3.5 Methods of Data Presentation

Finally, the analysis will be present in the form of tables, percentages and
graphs in order to compare the financial performance of the company in
different year.

21
 CHAPTER FOUR

4. Cost and Time Plan

4.1 Time Schedule

No Activity Jun. July. August Sept. Oct. Nov. DEC Jan.

1 Topic Selection X
2 Preparation of X X X
proposal
3 Collection of useful X
material
4 Data Collection X
5 Data Analysis and X
writing of final
research
6 Submission of X
research
7 Presentation of final X
research
2012ETC.

4.2 Financial Budget

Item Quantity Per unit (Birr) Total Cost (Birr)

Paper 1 200.00 200.00

Pens 6 5.00 30.00

Pencil 2 2.00 4.00

Binder 1 25.00 25.00

Transportation 5 trips 50.00 250.00

Total Cost - - 509.00

Internet 200 hrs 0.25 50.00

Typist 1 200.00 200.00

Total cost - - 550.00

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Contingency - - 1000.00

Overall total cost - - 2309

Bibliography

1. Chambers and Lacely, Modern Corporate Finance, 1994.

2. Weston J.F and Brigham E.F Managerial Finance 7th edition 1981.
3. Brealy, R, and Mayerss, Principles of Corporate Finance 2nd edition,
1984.

4. Pamela P. Financial Performance Analysis.

5. En. Wikepidia .Org.

6. Ross, Westerfield and Jordan, Fundamentals of Corporate Finance, 4th

edition, 1998.

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